Financial analysis in business
If you’re a startup, you might not have much information on your company’s financials yet. However, suppose you’re an existing business looking for small-business loans. In that case, you’ll need to include income or profit-and-loss statements, a balance sheet listing your assets and debts, and a cash flow statement showing how cash enters and exits the organization.
You can also provide ratios that highlight your company’s financial health, such as:
Net profit margin: the portion of sales retained as net income.
The current ratio measures your liquidity and ability to repay obligations.
Accounts receivable turnover ratio: a measure of how frequently receivables are collected per year.
Financial forecasts
This is an essential aspect of any business strategy if you’re looking for financing or investors. It describes how your company will create enough profit to repay the debt or how you will make a reasonable return for investors.
In this section, you’ll offer your company’s monthly or quarterly sales, expenses, and profit predictions for at least the next three years — with future numbers assuming you’ve gotten a new loan. Accuracy is essential, so carefully examine your previous financial statements before making estimates.
Your objectives should be aggressive but also reasonable. “If you can justify it, it’s OK to be optimistic,” Allen adds. “In general, you don’t want to draw attention to yourself in a negative way by being overly positive.”
You want to demonstrate that your company can create enough cash flow to make regular debt payments. But, according to Allen, you should also handle the business’s numerous risk concerns.
“The loan officer will undoubtedly want to know that you’ve considered all of the potential hazards and that you’ve mitigated those risks in some way,” he says.
Appendix Include any additional information or supporting documentation that you couldn’t fit in elsewhere, such as crucial personnel resumes, licenses, equipment leases, permits, patents, receipts, bank statements, contracts, and personal and business credit histories. If the appendix is lengthy, consider including a table of contents at the start of this section.
Tips and tools for developing a business strategy
Now that you’ve completed your business plan, here are some pointers to make your efforts stand out:
- Avoid over-optimism: If you’re looking for a business loan at a local bank, the loan officer will most likely be familiar with your industry. Giving inflated sales figures will jeopardize your loan approval chances.
- “They know what sales to expect for that type of firm in that market,” Allen explains. “If you walk in with a sales prediction that is 50% higher than comparable businesses, they will know you are not being realistic, and that will work against you.”
- Keep it brief: According to Allen, a solid business plan only requires 15 to 25 pages as long as it is clear, concise, and contains all necessary information.
Avoid getting bogged down by the technical features of your business or using too much industry jargon by focusing on the core elements of your business plan. You can always include supporting facts or other important elements in the appendix.
Proofread: Spelling, punctuation, and grammatical issues can jump off the page and turn off lenders and prospective investors, drawing their focus away from your business and onto the errors you committed. If writing and editing aren’t your strong points, consider hiring a professional business plan writer, copy editor, or proofreader.